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Exam 5: How to Form a Business

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Question 161

Multiple Choice

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Selma owns a roofing business.She enjoys being her own boss,but her satisfaction comes at a price.Her days are filled with organizing the activities of her employees and soliciting new customers.She often misses activities with friends and family because of the obligations of running her own business.She also knows that she has unlimited personal liability for any of her firm's debts.Selma's business is organized as an) :

A) Joint venture.
B) C corporation.
C) S corporation.
D) Sole proprietorship.

E) All of the above
F) A) and B)

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Question 162

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Unlike partnerships,if sole proprietorships find themselves in bankruptcy,they need not worry about a court of law requiring them to sell-off personal assets to pay for the debts of the firm.

A) True
B) False

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Question 163

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If you want to sell your ownership in a publicly traded corporation,you find someone willing to buy your shares.

A few years back,your three U.S.born friends that live in the State of Wyoming inherited a dude ranch that they plan to turn into a retirement haven for race horses.Peaceful Pastures wants to open its doors by spring,2011.After attending several small business seminars,the three friends are certain they need limited liability.The high-risk,labor-intensive business will require a sizeable investment including an air-conditioned barn,several fenced-in pastures and loads of animal feed.You recently heard that one form of business ownership requires owners to pay self-employment taxes on the entire amount of earnings.You are fairly certain this is one tax loophole your friends would like to avoid.You recommend:

Your friend,Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too.Although you lack expertise in graphic design or html programming,this should be a safe investment since it is already advertised as a franchise system.It's probably too good to pass up.

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks and mortar franchisee businesses.

States may levy special taxes on corporations that are not imposed on other businesses.

A partner owner) who invests money in a business,does not take an active role in managing the operation,and is only subject to losing the funds he/she invested.

The organizational structure of a corporation permits:

One important consideration when prospecting for a good franchise business is:

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Stockholders in a corporation have limited liability.

A major advantage of S corporations is that they:

Kristen and her brothers and sisters set up a design firm called Houses by Design LLP.Although key business functions are centralized,each sibling is a licensed architect that designs,builds,and installs residential and commercial buildings for his/her own clients.Unfortunately,a design created and installed for one of their clients resulted in water damage to the basement of the client's new home.The limited liability partnership:

Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners.

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.

Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of Western Kentucky.They operated the business as a general partnership.After 11 months,the business went broke and Jamie and Maria were left with outstanding bills of $37,500,which was more than their initial investment in the company.Jamie and Maria can:

It is impossible to run a franchise completely from home.

A major objective of limited liability partnerships LLPs)is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

If firms wish to gain market share in their current market,they would consider a conglomerate merger.